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With the rapid spread of artificial intelligence (AI), the importance of data centers is increasing. Currently, there is a potential shortage of data centers to support generative AI and the AI of the next few years, and there are challenges such as how to secure the large amounts of electricity consumed by data centers. While companies are making efforts to meet demand by using renewable energy and reducing carbon dioxide emissions, domestic companies tend to be less aware of this issue.

GAFAM companies have been building their own renewable energy power plants.

Companies like Amazon, known as GAFAM, have already entered into long-term contracts with power generators to directly procure renewable energy. They secure renewable energy generation facilities near electricity-consuming facilities such as data centers and use renewable energy in a “local production for local consumption” manner.

Google has announced that it has procured more than 50 renewable energy sources with a total capacity of 5.5 GW. Microsoft has announced contracts for 5.8 GW of renewable energy sources in 10 countries worldwide.

Government considers subsidy system

Meanwhile, the government has announced that it will promote industrial clustering in regions with abundant decarbonized electricity such as renewable energy and nuclear power. A system is being considered to review investment plans by companies and local governments when constructing factories and data centers, and to make projects with a high degree of decarbonization eligible for corporate tax breaks and subsidies.

The Green Transformation (GX) Promotion Act, which sets out the government’s decarbonization strategy, will be amended. Companies will be required to formulate plans specifying the proportion of decarbonized electricity used for facility development.

By making applications with municipalities that meet a certain level of decarbonized electricity for use within the region a condition, the government aims to shift to a corporate location policy focused on reducing environmental impact.

After certification, companies will be eligible for measures such as corporate tax reductions and subsidies for capital investment.

Expectations for a change in corporate awareness towards decarbonization

There is a bias in the regions where decarbonized electricity can be supplied domestically. Regions with a high proportion of decarbonized power sources, exceeding 40%, are limited to Hokkaido, Kansai, and Kyushu in Japan, where power generation facilities such as solar and wind power are widely located. Suitable locations for offshore wind power, which is subject to wind direction, are limited to the offshore areas of Hokkaido, Aomori Prefecture, Akita Prefecture, and Nagasaki Prefecture.

If electricity is transported far from the power plant, transmission losses occur. Transmission network equipment also incurs costs, making the use of electricity from remote locations expensive. Industrial clustering promotes local production for local consumption of electricity and leads to efficient use of energy.

In recent years, there has been active construction of semiconductor-related factories and new data centers in Japan. While electricity consumption is expected to increase, the government aims to achieve net zero emissions of greenhouse gases such as CO2 by 2050.

It is expected that subsidies will encourage companies to become more aware of decarbonization, but it remains to be seen how this will actually play out. We would like to introduce the future situation as well.

Japan is a country susceptible to natural disasters such as earthquakes, typhoons, and river floods. Historically, it has been crucial to manage data in locations that are resistant to such natural disasters and can minimize damage, ensuring stable operation of data centers.

Disaster-resistant locations are areas without nearby active faults, and regions not at risk of flooding from tsunamis, storm surges, or heavy rainfalls. However, recently, there has been a tendency to prioritize securing power and land in data center construction plans, while also considering disaster risks.

“ESR Cosmo Square” in Osaka Coastal Area

Suminoe Ward in Osaka City is located within 10 kilometers of Osaka’s city center and is a diverse area with commercial facilities in the coastal region, high-rise apartments in urban zones, and numerous factories in industrial areas. The ESR Group’s first data center project, “ESR Cosmo Square,” plans to construct a campus-type data center consisting of three buildings with a total IT power capacity of up to 98 MW in this area, which had previously seen no data center developments.

The buildings will be 5 stories high, measuring 40.34 meters (with a maximum height of 43.00 meters), and will incorporate disaster prevention measures such as raised floors and waterproof walls by surrounding the premises with walls.

With numerous cloud network connection points, telecommunications operators, and major IT companies concentrated in the surrounding area, and an increasing number of hyperscaler bases, a high demand for data centers is anticipated. The total asset value of “ESR Cosmo Square” is expected to reach $2.15 billion (approximately ¥314 billion), depending on the facility’s operational status.

Background: The Spread of Generative AI

The backdrop to this development includes the spread of generative AI, such as ChatGPT. According to a survey released by Mitsubishi Research Institute in May 2024, the amount of computation handled by data centers could swell to several hundred thousand times that of 2020 by 2040. Although data center operators are making efforts to improve energy efficiency, the demand surge shows no signs of slowing down.

Without prioritizing the acquisition of power and land, Japan may fall behind in global IT trends such as the evolution of generative AI.

Expecting Thorough Disaster Measures in Data Center Construction

Osaka, introduced in this case, is the second largest commercial hub after Tokyo, with a well-established population and infrastructure, making it the fifth-largest data center market in the Asia-Pacific region excluding China.

While the importance of data centers is increasing in the context of management reforms by large Japanese corporations, from a disaster prevention perspective, it is hoped that construction will proceed under meticulously prepared plans that consider all possible scenarios.

The repurposing of former factory sites of Japan’s leading manufacturers into data center locations is gaining momentum. The appeal of these sites for data center use lies in their vast land areas and ease of securing power supply. This article introduces the specific situations of these developments.

1. Marelli

Australian real estate development giant Lendlease has entered the data center business, advancing the construction of its first data center on land acquired from auto parts manufacturer Marelli in Nisshin Town, Kita Ward, Saitama City.

Lendlease, headquartered in Australia, has bases in Asia, Europe, and North America. The current facility, their first project in the data center business, has been under construction since June 2022 on Marelli’s former factory site, approximately 33,000 square meters and about 30 kilometers from central Tokyo.

The first-phase building, a six-story structure with a total floor area of approximately 30,000 square meters, is progressing with interior construction and will have an IT load capacity of 48 megawatts. The aim is to commence operations in the fall of 2024, with plans to develop a second-phase building of a similar scale on the adjacent site.

2. Hino Motors

Hino Motors has announced plans to sell part of the land at its Hino Plant in Hino City, Tokyo, adjacent to its headquarters. The sale will involve 114,000 square meters, equivalent to one-third of the factory’s site. The company is proceeding with a designated competitive bidding process, limiting the use to data center construction.

Considering the numerous residential areas around the site, the use has been designated for data centers to minimize the impact on the living environment, with bids requested from multiple companies. Some truck parts production remains on the land to be transferred, which will be moved to the Koga Plant in Ibaraki Prefecture before the land is cleared and handed over.

Due to the impact of engine fraud, Hino Motors reported a consolidated net loss of 84.7 billion yen for the fiscal year ending March 2022. The consolidated operating profit for the fiscal year ending March 2023 is also expected to decrease by 82% year-on-year to 6 billion yen, indicating ongoing difficulties.

The purpose of the land sale is to “further stabilize the financial base through the utilization of idle assets” (according to the company).

3. Sharp

Sharp announced it has signed a basic agreement, including exclusive negotiation rights, with SoftBank for the partial sale of its Sakai Plant in Sakai City, Osaka Prefecture, where LCD production will be halted by the end of September.

SoftBank plans to build a large-scale data center for the development of generative AI (artificial intelligence) using the land and part of the building, aiming to start construction in the fall of 2024 and full-scale operations by 2025.

Regarding the utilization of the Sakai Plant site, Sharp has also agreed to start discussions with KDDI and others for establishing an AI data center. Separate negotiations will continue with SoftBank regarding a different portion of the site.

Diversification of Management Initiatives

As data center construction progresses across various locations, approaches to the theme of data centers are diversifying.

It has been reported that Japan’s NEC is considering selling its data centers. Additionally, IT infrastructure and service giant NTT Data Group announced its entry into the real estate investment trust (REIT) market focused on data centers. This marks the first establishment of a data center-focused REIT by a domestic company in Japan.

The aim is to start operations in March 2026, with an expected asset size of up to 100 billion yen. NTT Data intends to utilize this new framework to capture the rapidly increasing demand driven by AI and accelerate data center construction.

The growing importance of data centers as a management theme is becoming evident in the business reforms of major Japanese corporations. As more companies are expected to plan new initiatives, we will continue to introduce these developments.

IDC Japan has released an analysis regarding the demand for hyperscale data centers in Japan. The analysis suggests that by the end of 2045, the demand for hyperscale data centers could reach approximately four times the domestic capacity of 2023.

Note: Hyperscale data centers are massive data centers used by mega-cloud service providers such as AWS, Google, and Microsoft to offer cloud services.

Amid the rapid growth of the cloud service business, several large-scale data centers are already being expanded in Japan, including in Inzai City, Chiba Prefecture. Additionally, the demand for using generative AI functions in cloud services is expanding. High-spec servers for generative AI purposes are often deployed within hyperscale data centers. As a result, the demand for hyperscale data centers is increasing. To meet this demand, data center operators and real estate companies are constructing new data centers to increase capacity supply.

Power Consumption by Data Centers Expected to Increase Sixfold by 2040

Data centers equipped for generative AI have HPC servers and GPU servers installed, which consume large amounts of electricity. Additionally, significant power is required for cooling. Consequently, with the proliferation of generative AI, power consumption is expected to increase explosively.

Regarding global data center power consumption, projections indicate that without energy-saving measures, it will exceed six times the 2022 levels, reaching 2,761 terawatt-hours by 2040.

Urgent Issues: Smooth Power Supply and Securing Renewable Energy Sources

In Japan, there is an urgent need to address the issue of power supply to meet the accelerating demand for data centers. With an increasing number of companies declaring a carbon-zero policy by 2050, more data center operators are securing renewable energy sources through Power Purchase Agreements (PPA). The Electricity and Gas Market Surveillance Commission of the Ministry of Economy, Trade and Industry is also taking action. They are considering measures to guide the location of newly expected data centers, due to the expansion of generative AI usage, to regions rich in renewable energy.

“Ensuring Power Supply” and “Securing Renewable Energy Sources” are crucial issues for the rapidly growing domestic data center market. We will continue to pay attention to measures addressing these issues in the future.

On the 5th, the market capitalization of the US semiconductor giant NVIDIA surpassed $3 trillion (approximately 468 trillion yen) for the first time.

NVIDIA’s market capitalization first broke the $2 trillion mark in February this year. The company’s performance has been rapidly expanding, supported by semiconductors for generative AI. It has increased its presence as a driving force in the US stock market, surpassing $3 trillion just over three months after exceeding $2 trillion.

Sales to data centers, including AI, are boosting performance. In the financial results for February-April 2024 announced in May, net profit increased to $14.881 billion, about 7.3 times the same period last year, and sales increased to $26.044 billion, about 3.6 times.

The Strength of NVIDIA: The Background

NVIDIA manufactures GPUs (graphics processing units). GPUs are chips designed for display functions such as video, image, and animation display and have been used to display images smoothly in gaming PCs and other devices.

Now, the demand for GPUs is expanding. The catalysts for this are “data centers” and “generative AI” represented by ChatGPT.

Until now, it was common for data centers to be equipped only with CPUs (Central Processing Units), but with the spread of AI, the trend is for data centers to be equipped with GPUs in addition to CPUs. However, only about 10-20% of data centers are currently equipped with GPUs.

This situation will change with the spread of generative AI.

Generative AI, such as image generation and natural language generation, requires a process called “inference” to run an AI model created by learning and reach a conclusion. When you ask ChatGPT a question, the answer you get is the result of “inference.” The inference process requires more calculations than the learning process. Therefore, it is necessary to also install a GPU, which is suitable for large-scale calculations.

In the future, it is clear that generative AI will become the main task of generating information in most data centers worldwide, and it is said that within 10 years, most data centers in the world will be equipped with GPUs.

NVIDIA’s “CUDA”: The Standard for AI Developers

Unlike CPUs, GPUs are good at performing large amounts of calculations simultaneously in parallel, but to bring out their capabilities, a development environment for GPUs is required.

NVIDIA’s “CUDA” is one such “development environment for GPUs,” and since CUDA has become the de facto standard among neural network researchers, many libraries have been created on top of it. Now, at least when it comes to the learning process, there is almost no choice but to use CUDA.

CUDA is a development environment created by NVIDIA for its own GPUs, so as a result, it has become the standard to “use NVIDIA in the neuron learning process.”

CUDA protects NVIDIA as a competitive “moat” that rivals cannot easily overcome.

Will NVIDIA Have a Near Monopoly for the Time Being?

According to the British research company Omdia, NVIDIA will have a 77% share (2023) of the global market for AI semiconductors for data centers. The company’s cutting-edge GPUs are highly sought after by companies developing AI.

For the time being, NVIDIA is expected to have a near monopoly on the GPU market for data centers. However, we will also be keeping an eye on the movements of other companies that deal with GPUs.

In May 2024, OpenAI released the latest model of ChatGPT, “GPT-4o”.

It is a cutting-edge multimodal AI that can process text, voice, and images in an integrated manner, and it is attracting attention because it will also be implemented in the free version of ChatGPT.

Generative AI has a major impact on the data centers that are being newly built by GAFA and other Japanese companies, and we would like to take a look at how OpenAI’s latest version of ChatGPT, “4o”, which is a representative example of generative AI, is different from the previous version.

What is GPT-4o?

ChatGPT-4o (Omni) is the latest model of ChatGPT announced by OpenAI in May 2024. Omni means “all” in Latin, and represents the ability to handle all information, including not only text but also images and voice, and perform any task.

Compared to the conventional model GPT-4 Turbo, the answer accuracy and speed have been overwhelmingly improved, and it has been upgraded in every respect, such as being able to have emotionally rich voice conversations like humans and reading the fine details of images.

What are the features of GPT-4o and how does it differ from other models?

The GPT series is a large-scale language model developed by OpenAI, and its performance improvement is remarkable.

GPT-3, announced in 2020, attracted attention as a large-scale model with 175B parameters. In 2022, GPT-3.5 was implemented in ChatGPT, widely publicizing the potential of language generation AI through dialogue with general users. And in 2023, GPT-4 showed the first step toward multimodalization.

GPT-4o is positioned as an extension of the evolution of this GPT series. However, it stands out from conventional GPTs in that it does not just improve performance, but also achieves smooth integrated processing of voice, images, and text.

The main evaluation points that have been significantly improved compared to conventional models are introduced below.

① Text accuracy

It boasts high accuracy in understanding and generating complex sentences. This allows for more natural and consistent text generation.

You can also easily create article structure plans, which are essential for writing.

② Text and voice response speed

New algorithms have improved text and voice response speeds, making real-time dialogue even smoother. In addition, the voice has intonation, making it feel like you are talking to a person.

③ Voice recognition and translation function

The accuracy of the voice recognition function has been improved, and the multilingual translation function has also been enhanced. This makes global communication more efficient.

It is also possible to translate in real time by recognizing and processing voice.

④ Improved image recognition function

Image recognition capabilities have also been improved, allowing the content of images to be analyzed with high accuracy and related information to be provided.

It is also possible to extract characters from image data. For characters that are difficult to read, characters can be inferred from other image data and extracted.

⑤ Security function

A new tokenizer has been introduced in 20 languages, including Japanese, and significant improvements have been made in terms of security. This has improved data security and processing efficiency, and has enabled fast and secure data processing while protecting user privacy.

Evolving ChatGPT

ChatGPT has added many surprising features in this update, such as improved image processing capabilities and the addition of a voice recognition function.

In the future, it will be possible to converse via real-time video, and a new voice mode is planned to be released that will allow the contents of the loaded video to be explained in voice.

The development of ChatGPT, which is leading the generative AI, will have a major impact on future data centers, so we will continue to watch the situation from time to time.

Meanwhile, as expectations grow for new functions to be developed in the future, power consumption is expected to increase several times over.

In Japan, how will the power shortage of newly opened data centers be resolved?

We will also be keeping a close eye on this.